Wal-Mart On Its Way To Bringing Operational Efficiency And Productivity

At Wal-Mart's (NYSE:WMT) 19th annual meeting for the investment community, the company's CEO highlighted that business momentum was building in strength, and the company was improving its financial results. The company discussed its current business plans in the meeting. It is committed to improving its operational efficiency and productivity. Wal-Mart discussed its business plans, and said that it will be adding more stores in the coming years in order to dominate the market place. The company is focusing on small format stores.

Wal-Mart gave its guidance for the next fiscal year, which includes a sales growth of 5%-7% and retail square footage growth of 3%-4%. The company is yet to disclose its earnings guidance. To improve upon margins and earnings, Wal-Mart is expected to grow operating expenses at a rate lower than the rate of sales growth. The company's capital plan for 2014 includes spending on innovative processes and technology that could help the company improve upon the overall productivity and efficiency of its business. The capital plan also includes investment in a global e-commerce structure and a global technology platform. To improve operational efficiency, the company is committed to reducing operating expenses by 1%, as a percentage of total revenues.

Wal-Mart President and CEO said: "Wal-Mart is strong, and we are getting stronger." The CEO further added, "We have momentum in our business that is producing top line and bottom line results. We're delivering on the productivity loop and being even more disciplined about operating expenses and capital spending. We're making investments that are creating a better business. I believe that the combination of momentum, investment and discipline will continue to deliver growth, leverage and returns for our shareholders."

Wal-Mart is committed to improving the productivity of its existing stores. If the company is able to achieve operational efficiency, and also improve productivity, it will have a significant impact on the company's bottom line.

Wal-Mart plans to increase its Neighborhood Market grocery stores in the coming years. These stores are smaller than supercenters and are focused on groceries. Each store is around 38,000 square feet in size, offers meat and dairy products, household supplies, health and beauty products, bakery items and medicines. Currently, there are 215 Neighborhood Markets in the U.S., and Wal-Mart plans to add more of these stores. By the end of fiscal year 2013, the company is expected to have 240 Neighbor Market stores, and 500 by the fiscal year 2016. The concept of smaller stores is gaining in popularity as it is more convenient for customers. Sales growth rate, at more than 5% for neighborhood stores was faster than the overall Wal-Mart rate.

Wal-Mart plans to add 21- 23 million square feet of store space internationally in fiscal year 2013, and 20-22 million square feet in fiscal year 2014. Wal-Mart is expected to add 125 supercenters in the U.S. next year. Capital spending is expected to be 12 billion to 13 billion in fiscal year 2014.

As Wal-Mart adds these small stores, other small neighborhood grocers and supermarket chains like Roundy's Inc. (NYSE:RNDY), Safeway Inc. (NYSE:SWY) and Supervalu Inc. (NYSE:SVU) are likely to be hurt by the increase in competition. These small grocery stores are much smaller in size, and cannot match the resources of Wal-Mart or its ability to offer better services at higher discounts. The resources Wal-Mart has, along with the growth opportunity of express stores, can drive up revenues and profitability for Wal-Mart.

In order to improve on its sales and business performance, the company is targeting the holiday season more aggressively. Already the company has a higher merchandise level as compared to last year. For this holiday season, radio advertising spending increased by 50% compared to the corresponding period last year.

Wal-Mart's forward P/E of 14x is less than its competitor Costco Wholesale. The company's PEG is also in line with Costco (NASDAQ:COST). Wal-Mart has a lower debt as compared to Target and Safeway.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Consumer Staples Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.